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Business warns of 8% to 10% GDP contraction and at least one-million job losses as Covid-19 pandemic ravages South African economy

Martin Kingston

Martin Kingston

Photo by Creamer Media

14th April 2020

By: Terence Creamer

Creamer Media Editor

     

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Initial modelling conducted by South African business of the potential macroeconomic impacts of the country’s response to the global Covid-19 pandemic indicates that the country’s gross domestic product (GDP) could slump by between 8% and 10% in 2020 and that more than a million jobs could be lost.

Likewise, the model shows that government’s fiscal deficit could rise to as high as 10% of GDP; far worse than the 6.8% of GDP, or R370-billion, outlined in the February Budget for 2020/21.

Business for South Africa’s Martin Kingston disclosed the figures during a media webcast on April 14. He stressed, however, that the modelling, which was a bottom-up assessment incorporating 50 sectors, was ongoing and that business would provide a full assessment of the impacts only after the National Treasury released its official appraisal.

The severity of the economic contraction, he added, would also depend on the length and extent of the lockdown, as well as the extent of lockdowns introduced by South Africa’s key trading partners.

The outlook would also be affected by the fact that capital flows were likely to be restricted for the balance of the year, while South Africa’s currency was also likely to be volatile, as were the prices of the country’s key commodity exports.

Nevertheless, it was already apparent that the combination of South Africa’s extended lockdown (during which only essential industries were allowed to operate) and the recent downgrade of South Africa’s sovereign debt to junk would result in a “significant economic contraction” in 2020 and the loss of many formal and informal sector jobs. Any economic and employment recovery was, thus, only likely in 2021.

“We are cautious about putting out numbers at the moment, but certainly we think that over a million people, in the base case, are likely to be added to the unemployment numbers and we are having to look at appropriate safety nets that the fiscus can support in highly constrained circumstances,” Kingston said.

Business was generally supportive of calls for a national income grant for those South Africans who were not employed, but would be guided by the National Treasury regarding the affordability of such a scheme. Should every social grant recipient receive an additional R500, business estimated that it would cost the fiscus R9-billion.

PARTIAL LIFTING OF LOCKDOWN?

Business for South Africa’s economics working group, meanwhile, was in ongoing discussions with both government and labour about the potential for partially lifting the lockdown for certain industries, as well as on formulating a stimulus plan to help reinvigorate the economy once the lockdown is lifted.

In his April 9 address to the nation, during which the lockdown was extended to the end of April, President Cyril Ramaphosa said that government would evaluate embarking “on risk-adjusted measures that can enable a phased recovery of the economy, allowing the return to operation of certain sectors under strictly controlled conditions”.

Kingston said the current focus of the economics working group, which he leads, was to work with government on what aspects of the lockdown might be lifted, without compromising the health of South Africans.

“We are in dynamic discussion with government about the basis on which the lockdown can be released, either in whole or in part, regionally, sectorally, demographically, or indeed by age.”

The key factors guiding this sector-by-sector assessment, included the contribution an industry made to GDP, employment and exports. “We are also taking into account the risk of transmission . . .  and the ability to safeguard.”

UIF SUPPORT?

Labour working group head Rob Legh said that, besides recent efforts to unlock Unemployment Insurance Fund (UIF) support for affected employees, efforts were under way to define health and safety protocols for those businesses that might be allowed to resume operations.

Business for South Africa’s labour working group’s most intensive focus to date, however, had been to represent business in negotiations at the National Economic Development and Labour Council , which led to an agreement on the Temporary Employer/Employee Relief Scheme, or TERS, under the UIF.

The agreement, Legh said, had resulted in a redesign of the TERS benefits so that firms did not have to demonstrate financial distress and could also provide for top-ups by employers. The benefit was also now available for three months not only the month of April.

Ramaphosa had estimated that the value of the special lockdown benefit could be about R40-billion, which could be absorbed rapidly in light of the fact that many businesses, especially small firms, were already having to consider retrenching workings.

“If applications are made of two-million employees at the minimum level of R3 500 an employee, that’s R7-billion . . . so I can imagine that R40-billion could be deplete quite quickly,” Legh noted.

Business, which was providing support to government in equipping healthcare facilities with critical equipment and resources, was also directly linking the issue of structural reform, including the reform of State companies and key sectors such as electricity, to the initial discussion on the nature of the post-Covid-19 stimulus package.

“We recognise that going into the future we are going to have to restructure our economy very aggressively – not just as business, but as a country – and we are already engaged in that discussion with government and with organised labour and civil society to ensure that we can maximise our economic trajectory when we come out of Covid-19, which we anticipate only being probably by 2021, and then rebuilding the economy on a more efficient basis going forwards.”

PPE PUSH

More immediately, though, Business for South Africa was supporting government in both sourcing and procuring personal protective equipment (PPE) stock for South Africa’s frontline medical staff, across both the public and private sectors.

Healthcare working group head Stavros Nicolaou reported that, to date, PPE worth R400-million has been acquired, with pipeline funding for a further R360-million. Stock procured includes: 900 000 sterile gloves; 20 000 face shields; 1.12-million N95 masks; 6-million surgical masks for healthcare workers; 8.5-million surgical masks for patients and 200 ventilators.

“The focus is to secure PPE stock for the next six to eight weeks, and monthly thereafter,” Nicolaou said, adding that business was working with the Department of Trade, Industry and Competition to assess the prospect of repurposing some manufacturing enterprises to produce ventilators, or to revive latent domestic capacity to produce ventilators.

Although South Africa’s infection curve has flattened since the March 26 lockdown, Ministerial Advisory Group on Covid-19 chairperson Professor Salim Abdool Karim has warned that South Africa is unlikely to escape the worst of the epidemic. He has, thus, urged South African to use the recent period of decreasing infection rates to prepare for a “delayed exponential curve” in the months ahead.

Nicolaou reported that business was working with government to intensify testing and indicated that the country had sufficient testing equipment and test kits to ramp up to a testing rate of 25 000 a day.

Edited by Creamer Media Reporter

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